Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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22 Responses to –A truly outstanding summary of Monetary Sovereignty for those who want to understand economics

the minute somebody says all money begins as debt I’m all done with them. Money represents material wealth, including labor to produce wealth, not debt, which is a different thing…borrowing what you do not have.

And as for wealth, if that is an economic measure, exactly how much wealth is there in the U.S.? I can tell you how much debt there is and I can tell you how much money there is. Can you tell me how much wealth there is, and if not, why not?

I would never support any form of “money” that is based on debt. Items or worth must predicate all monetary systems or they are worthless to begin with, and especially not debt. It is but a logical extension of barter, then a LET system with it’s journals of worth, then just add notes…money ! Of course who issues/owns/ and gets to spend, lend or hoadre the money is what counts, which should be the government, and as I would have it, under the strict supervision of all departments/branches and also overseen by the states with their powers of nullification (10th) to make sure many eyes and minds are to the task of keeping all fair and legal, as with the bank of north dakota, which must by law in it’s mission statement return all profits to the people of the state as new loans or tax refunds. Franklin and Lincoln had it right; they just didn’t have modernity to bolster their ideas to keep them in line to prevent inflation/deflation/counterfeiting, etc. The “federal reserve” is for the most part an abomination as L T McFadden spoke of and JFK tried to replace, but we all know how that ended up…malfeasance of the all seeing eye IMO, even if Washington himself was a part of it, but it is much more complex than that of course as it evolves with offshoring, outsourcing and decimating of the America the world once knew, the idiom for which is no longer needed and whose residents consume too much of scarce resources as compared to overpopulated areas and so as the Georgia obilisque intimates, must be eliminated, etc. I have little faith in the future and try to take such into account in all things.

Rodger, I think the problem is that people, perhaps unfortunately roundelswgs, have a weird definition of “debt” in their mind, that is not found in the dictionary. Lexicographers are pretty good economists. Just having to make a decent, usable, general definition makes them.
roundelswgs – money doesn’t “begin as” debt; it is debt. The JD Alt piece doesn’t go far enough. He asks But in what sense does that deficit become a “debt” that we, the players, should worry about paying back? But doesn’t note that it is a debt, a debt that the “CIG” owes the players. Nonsense “this baby is born owing 50000 dollars propaganda” reverses the creditor & debtor. Wish I could do that with my credit cards! :-)

And another problem is that some of the world’s worst economists, e.g. Chicago school, do sometimes say money is debt, but they don’t really understand what they are saying, and never actually use the idea, except sometimes to “reason” illogically to arrive at absurd conclusions. So natural and healthy revulsion against their nonsense makes people throw the baby out with the bathwater.

By “debt”, my understanding is one of borrowing, not of promisory notes to “pay to the bearer on demand”/legal tender law, etc., which are very different concepts of course. The real problem with such definition comes into play when a rentier can “buy” the country in large denominations/amounts with usurious interest instead of being encouraged and incentivized to invest in private business of the country outside of the MIC mess/overages all too common since before Smedley Bulter. There should never be a “national debt” of any real size, which could endanger the “general welfare” of the country such as we have now nor the “deficits” that mainly generate it. Reasonable retirement
accounts could be bought as “E” bonds, etc. , but no large entries, and especially not much foreign such “ownership” of America, there being n place incentives to run businesses that generate jobs and generally stimulate the economy instead…not as now with basically “de-regulated” offshoring, outsourcing, expatriating to the ruination of the country lest the American idiom be lost to humanity for all time IMO. “Deficit type” spending should only be allowed in tmies of dire emergency as in a war, properly declared against a large enemny force, not some “war on terror”, which allows anyone in the world to be so declared with NDAA !
After hostilites, the overprinting of fiat by the governemnt that would eventually cause inflation if not dealt with would be taken care of by reparations from the vanquished with eg. $.20/gal gasoline, but made so available to the general public, not just the oil companies as now. Actually they and other such strategic mass industries should be so declared and made public like the bank of north dakota, which I hope yu are both acquainted with ? All profit must be given out as proper new loans or refunded to the people as tax abatement ! THAT should be in the Constitution. more on my small blog… http://usssaratoga2.blogspot.com/

By “debt”, my understanding is one of borrowing, not of promissory notes to “pay to the bearer on demand”/legal tender law, etc., which are very different concepts of course. No, they aren’t. That’s the point. Monetary economics, MMT/MS operates from the barest commonality of these concepts. The most abstract, universal & simplest concept of debt, obligation to, liability, brownie point. Or the opposite words for the same thing viewed in the opposite direction credit, obligation from, asset, einworb point :-). These are “immaterial devices of the mind”. Nothing to do with items or worth or commodities or barter. It takes the entire operation of a monetary economy to equate the “immaterial device” with material objects. Dan Kervick wrote an essay at NEP that got it exactly wrong, saying that “debt” must be a “debt for something”. Much better to say “debt” means “debt for nothing”. It just means “I owe ya one”. One what? Just one. It can be cancelled by an ” I owe ya one” the other way, where I & ya are reversed. And that’s it. The end.

So when governments spend is really when they are borrowing, becoming indebted to citizens. The government gets real wealth, say a piece of cheese for a government cafeteria, in return for dollars, which have value because the government demands them in taxes (= permission to reside outside jail) or for other things the citizens want – like the same piece of cheese at the cafeteria, in the future.

But the Fed’s model is not only usury to the max, it’s unConstitutional as you must know…also, you do not allow anyone to buy large “shares” in the country or large deficits…you print instead, but only for war in excess of GNP, then repatriate with assets claimed against the vanquished. Investment in the country should be in the form of business interests, taking your chances in that way, not some guarantee by the government to force the American people to pay for mistakes others make like the JPM exec just made….NO TARP, and NO QE (esp.); also NO de-regulated (or unregulated) free expatriation of American funds with offshore accounts, as the $14 trillion in the Caymans, and instead make incentiviezed legislation to rekindle at least some manufacturing at home, taking into account America’s declining role as an industrial power in the world, and the lessening of labor’s role and remunerations to whit, BUT NOT destroying the country as is happening now. those who are true to no country should not be able to benefit from using it as an economic dishrag !

To finally try to answer your original questions as part of my main concerns which I expressed first, but are still incomplete as to my own analysis as to where the country, and indeed the world is going wrong…
Wealth WAS in the USA in sufficiency until perhaps after Reagan’s group began expatriating it all without taxes or penalties (or any kind of notice as to their reasons for doing so, which are becoming all to apparent recently….overpopulation; not in the India/china sense of numbers, but of too many highly consumptive Americans who use perhaps as much as 100 times the resources of individuals in those impoverished countries). As to how much debt there is in this country, I am not qualified to quantify any such thing, and can only reiterate that which is FOIA available, ie. the totally usurious, unConstitutional “national debt” and companion “deficit spending”, etc.
Private debt I am not up on and am not sure how to speak of such things anyway, and fail to see your point in all this. As to how much wealth there is; that to is beyond my ability to ascertain with any true sense of certainty, but I have read in many places that the Cayman island banks, and those of Uruguay and Paraguay hold in excess of $14 trillion USD….which just happens to match the “national debt”. As to “why not”, I can’t imagine why you think I should be absolutely certain of my totals, when all I can do is look them up online; perhaps you have better input there and could share that if you wished I suppose.
Do we really need to get into the discussion about Ben Franklin’s take on what money is ? that’s where I start (and Abe Lincoln).

I’ve been patient in printing your long-winded responses, even though you don’t seem to be able to answer the simplest economics questions.

Let me help you out. The Federal Reserve Bank of St.Louis says total debt in the U.S. as of December 2011 is $38.3 trillion. See how easy that was? No Freedom of Information request needed.

Now that you say you don’t know the answer to: What form of money is not a form of debt? And you also don’t know how much wealth there is, even though you were the one who brought up wealth, and you don’t even know why you don’t know.

So how about something really basic. If you can’t answer this, then you would reveal you know absolutely nothing about economics, and your next response will not be posted.

So think hard:

What are the differences between Monetarily Sovereign and monetarily non-sovereign?

There are a lot of people who have bought into this debt free money nonsense.

Money is a financial asset so it must be backed by a financial liability (debt). But the believers do not want to know. I try to explain on various web sites but it seems like a lost cause. All I can hope is new readers looking for answers are not mislead by the nonsense on these debt free money sites.

In your opinion, what made the United States surrender its monetary sovereignty during the periods of time (aftermath of American Revolutionary / Civil War, World War I) when it declared such? We’re talking about some of the most brilliant minds in history like Benjamin Franklin — who even complained about the intentional inflationary attack the British were doing to the Continentals — who could not have failed to note the wonderfulness of monetary sovereignty. I know economics wasn’t at its most advanced stages, but surely the Founding Fathers/Lincoln and Wilson Administrations noticed that they made an economy from practically nothing and that the United States went from backwater to global superpower in four years under Lincoln’s policy?

All people are ignorant, even brilliant people — ignorant of different things. I have no idea why anyone in history may or may not have understood Monetary Sovereignty, and I really don’t care what they believed.

Maybe it’s just off base, but, it seems that if you study history people are on the threshold of awareness to MS rather than just flicking a light switch and everything making sense. If we could pinpoint the events or zeitgeist which allowed people to inch towards it it’d be extremely helpful.

Unfortunately, it only seems like people inch towards economic understanding in periods of political crisis (Long and Great Depression, American Civil War, OPEC oil embargo, the current financial crisis, etc.) otherwise. Just this once, I’d like to skip the whole ‘nobody has any jobs and/or there’s war afoot’ step.

Rodger,
This is what I got from a disbeliever when I urged him to read Monopolis, which I thought was so well articulated…
quote:
“The reason MMT guys get no attention is that so far the economic system has defined money as a means to some ends… like facilitating transactions… and store of value…and relies on “markets” to do the difficult task of resource allocation and “policy” to identify longer term important goals which free- market is likely not to address. What the MMT guys start with is that only problem is that we are constraining money… and this awesome long-winded point that we can print it. Lordy lordy we know we can print it and that is what we have been doing. The fictitious character of “money” is long understood… that is why it is referred to as “fiat” money..that is no nobel prize winning insight all of a sudden. It is the affects of it that are becoming more difficult to understand. If the problem was just that we were not printing money fast enough, we would have reached Utopolis very early. The point is that you cannot confuse monetary with fiscal and fiscal with monetary. Keep trying may be someday I will get it!! May be MMT means one world one nation… and alas no sovereignty!

P.S. Is it correct to assume under unlimited money these economic concepts are rendered not applicable:
– nominal interest rate is zero
– the word debt is a folly of the past
– do we still need the private sector?”
end quote.
I need help articulating a compelling response to this group of friends. Like you, I want to keep trying. They are already calling me misguided utopian.
Thanks.

MMT says the “normal” (not nominal) interest rate is zero, therefore should be zero. I disagree. And, as a creditor (CD & T-security owner), I really disagree. Historical data seems to indicate that higher interest rates, probably by forcing the government to pump more interest money into the economy, are slightly stimulative.

The word “debt” is just one of those words that has multiple meanings — one thing for monetarily non-sovereign entities and something altogether different for Monetarily Sovereign entities. While a T-security is called “debt,” today it is nothing more than an investment security, more closely related to a money market investment than to a loan.

Yes, we need the private sector, because there are many areas where the profit motive is beneficial. The communists tried doing away with the private sector; that was their undoing.

Your friends probably have difficulty staying on point. Most people recognize that “Monetarily Sovereign” means sovereign over your money. “Sovereign” means having the unlimited ability to do anything you wish. A Monetarily Sovereign government can create all the sovereign currency it wishes.

But when you get your friends to agree with that, they immediately will switch arguments from can the government create unlimited dollars to should the government create unlimited dollars, i.e. inflation.

They they will say something like, “Why not just give everyone a million dollars.” The correct answer: That would cause inflation.

And that brings the discussion to a more logical point: How many dollars should the federal government create, without causing inflation. There is much data to show that since we became Monetarily Sovereign, we never have arrived at the point of too many dollars causing inflation, so it’s a rare circumstance.

I think I’ve figured out why most people don’t “get” either MMT or Monetary Sovereignty. It’s because both are sold as some form of “debt.”

In reality, every economic transactation has three parts: 1)the producer; 2) the consumer; and 3)the financial intermediary.

In every non-barter transaction, the value of every good and service is translated into a financial intermediary. This is a very basic Constitutional issue as well, because in Article 1, Section 8, Clause 5 of the US Constitution the power to “coin money, regulate the value thereof, and of foreign currency, and to fix the standard for weights and measures.”

That is to say, the US Congress is supposed to issue the currency that forms the financial intermediary used in almost every transaction that US citizens make. Pretty straightforward, read this way, which is the way most of the public subliminally view this issue.

How on this earth could a financial intermediary be a debt, if its only purpose is to serve as the means of facilitating commerce? Debt, owed to whom? You must be crazy, that’s what most people think.

The purpose of the currency is to act as a part of the “system of weights and measures.” How is anyone entitled to take a cut of that? They aren’t, anymore than anyone is entitled to place a toll on a publicly-owned road.

I’m one of the very few of your readers who actually own a copy of your book, “Free Money.” You need to rewrite this thing and explain in it how the only function of money is to be the medium of exchange, and that it is to be issued, debt-free, by the US Congress.

We need a real National Bank, answerable solely to the US Congress, that performs this function. THe Federal Reserve System has many useful functions, and they should be assumed by the US National Bank.

All new money should be issued by the National Bank directly to the states on a per capita basis, where it would be put into action at the bottom of the economic pyramid, instead of from the top-down as it is now. Money would move in the local economies and then move into the coffers of the banks, who would do their primary function of gathering savings and making loans.

Since I don’t want to write the book for you–although I feel like I could–I will leave this here. We need to do this entirely differently than we do now if we want to make the country grow in a way that is equitable.

Even “backed by” makes things too complicated. The problem is that this stuff, MMT, MS is so simple it repels the mind. It is in fact something everyone already knows, but doesn’t know they know or how they know. And incorrect theories which make everything more complicated than it really is become easier to grasp and familiar.

“Is” is the correct word. A’s financial asset is just B’s financial liability. They are the same thing, looked at from two different directions. A financial asset like a dollar bill is just a statement that “Uncle Sam owes you a favor”. It would be quite odd to say that if B owes A a favor = B has a debt to A, then the favor A is owed (A’s asset) is “backed by” the favor B owes (B’s liability). Sure you know this, just felt like pounding the point in for the umpteenth time for others.

Yes, assets vs. liabilites, the point of ownership tells all, but in the singular case of money creation, it is the government that should “own” the money period….or I could have a war over that as did Franklin !

Here we have a couple of very bright people who cannot see the forest for the trees. Don’t you think that those of us who follow these things “get” the double-entry bookkeeping system? We can do this stuff in our sleep.

Here’s the problem: Debt. I will guarantee you if you ask 100 people what debt is, 99 if them will tell you that it is something that is owed. Because that is exactly what it is!

Let me reiterate that money is the financial intermediary. It is not debt. Money is not a mirror in some mathematical equation. It actually represents value, and absolutely no one is entitled to take a cut out of it.

Over the past 30 or so years,I think I’ve heard almost every argument as to why we need to have a debt-based currency. They are all bunk. Money is a means to conduct commerce, it is the financial intermediary, and it should be issued–in toto–by the Congress of the US, just like the Constitution says.

. I will guarantee you if you ask 100 people what debt is, 99 if them will tell you that it is something that is owed. Because that is exactly what it is! We agree. Exactly right. To be in debt is to owe.

Let me reiterate that money is the financial intermediary. It is not debt. Money is not a mirror in some mathematical equation. It actually represents value, and absolutely no one is entitled to take a cut out of it. That is just a bunch of not very meaningful words.

Money is not primarily “the financial intermediary” 99 of 100 people would say huh? it is debt. A US dollar represented by a dollar bill is a debt that the government owes you. It’s just Uncle Sam promising to be nice to you at some time in the future. Uncle Sam thereby owes you his promised future niceness. Really, that is all there is to it.

It’s an empirical fact that the primary medium of exchange, the primary financial intermediary, the primary representer of value has always been these state & institutional abstract promises of future niceness. Barter has never been important.